Wednesday, November 4, 2009

The OTHER Economic Crisis

Check out the full article here: Courtesy of zerohedge

You know all about the subprime, alt-a, option arm, and commercial real estate crises. You're well-aware of the house of cards built with credit default swaps, securitized assets and other exotic investments. You've heard about the massive debt overhang threatening individuals, companies and the country as a whole, and the massive de-leveraging which is still to occur. You're aware of the soaring unemployment rate, the tapped out consumer, and many other economic problems.

But do you know about the demographic crisis?

Specifically, they say that the basic health of any country's economy is largely driven by the number of its citizens who are in their peak spending years.

For example, the peak Japanese spending range has been estimated to be comprised of 39-43 year olds. The more 39-43 year olds Japan has at any given time, the more consumer spending there will be, as these are the folks who are the big spenders in Japan. Dent argues that the Japanese economy will tend to grow when the number of 39-43 year olds grows, and to shrink when it shrinks.

In the U.S., Dent says, 46-50 year olds are the biggest spenders, because that is when - on average - they are paying for their kids' college, paying mortgage on the biggest house they will own during their life, and making other big-ticket purchases.

Claus Vogt agrees, saying that - all other things being equal - the country with the youngest population will experience the biggest growth in the future, as it will have the highest percentage of productive people in the days ahead (Modigliani's age categories are somewhat different from Dent's and Vogt's, but - in general - people are having children later than they were in 1985).

Whether or not you believe Modigliani , Dent and Vogt, it should be obvious that countries with a large percentage of elderly people and a small proportion of productive workers will have less productive output and a larger demand for social services than those with a higher percentage of workers. It should also be obvious that this will tend to drag down the economy.

What does all this mean?

Well, initially, it means that - in addition to everything else they have going for them - 2 of the BRIC countries (Brazil and India) have much more favorable demographics than the United States. So they are at a competitive advantage to America for demographic reasons in addition to the other reasons that people write about.

Moreover, Dent and another of the main writers focusing on the economic effect of age demographers - Daniel Arnold - say that America's aging demographics point to a major depression.

This is going to be a serious problem in the future, as it is for all countries when they experience population cycles. I encourage you to read the full article. Link at the top of the page.

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